Leaders and capital gains: no 40% increase without intent to evade tax.

Business leaders and start-up founders often face complex tax issues, especially when transferring securities (shares or stocks). The taxation of capital gains on securities is a major concern, particularly since errors in declarations can lead to significant tax reassessments, accompanied by penalties of up to 40%.

A recent ruling from the Administrative Court of Appeal (CAA) of Versailles on May 26, 2025 (n° 22VE02754), linked to a ruling from the CAA of Paris on January 31, 2025, reminds us of a fundamental principle: a declarative omission is not sufficient, in itself, to characterize a deliberate breach.

In this article, we analyze this ruling and its practical implications for leaders, project holders, and start-ups involved in transfer operations.

An Error on the Deduction to Reintegrate Is Not Enough to Justify the 40% Penalty

The facts leading to the decision involve two taxpayers who realized capital gains in 2013, 2014, 2015, and 2016. While they correctly applied the holding period deduction (reserved for income tax) for the years 2013 and 2014, indicating the amount to reintegrate for the calculation of social contributions (PS) and the exceptional contribution on high incomes (CEHR) in box 3SG of the declaration, they failed to do so for 2015 and 2016.

The tax administration thus sent them tax reassessments of over one million euros, accompanied by a penalty for deliberate breach (automatic increase of 40% if the administration proves that the taxpayer deliberately intended to evade tax).

However, in its ruling of May 26, 2025, the CAA of Versailles dismissed the penalty, considering that these simple errors were not sufficient to establish the intent to evade tax.

Acknowledgment of Lack of Deliberate Intent

The administrative court recalls that:

The taxpayers had provided the administration with bank documents tracing the transfer operations, allowing it to correctly calculate the taxes owed.
This was not a repeat offense: in 2015 and 2016, the taxpayers indeed made the same error, but the first breach had not yet been detected at the time of the second.
No prior reassessment had been notified for the same reason.

In short, the repeated omission of mentioning the amount of the deduction to reintegrate in the dedicated box is not, by itself, sufficient to characterize fraud or a manifest intention to conceal.

What This Means Practically for Business Leaders

For leaders, founders, and investors who have transferred start-up securities, this ruling is an opportunity to revisit a often overlooked point in capital gains declarations: the distinction between income tax (IR) and social contributions.

When you sell securities with a capital gain, you may benefit from a holding period deduction, which reduces the taxable base for IR. However, this deduction does not apply to social contributions and CEHR. Therefore, in your declaration, you must reintegrate the entire capital gain for the calculation of social contributions. This reintegration is done in specific boxes (notably box 3SG).

Forgetting this step can lead to a reassessment, but the administration will have to prove an intent to commit fraud to apply the increase.

Concrete Example

Consider a founder who sold his shares after 8 years of holding. He benefits from a 65% deduction for IR. But for the calculation of PS and CEHR, he must declare the gross capital gain, without deduction. If, in his declaration, he forgets to reintegrate the deduction in the dedicated box, his taxable base is reduced: reassessments are to be expected. However, unless there is a deliberately concealed intention, the 40% penalty could be contested.

What Lessons Can Be Drawn from This Decision?

This type of litigation highlights the complexity of the French declarative system, particularly regarding capital gains taxation. It also reminds us of several essential principles:

The administration cannot presume fraud solely based on a material error or an omission, even if significant.
Any communication with the administration – bank documents, transfer tables, explanations – can work in your favor to demonstrate your good faith.
A declarative omission is not necessarily a fraudulent maneuver, especially in the absence of recidivism or manifest concealment.

For founders, start-up leaders, and entrepreneurs who transfer all or part of their holdings, increased vigilance remains essential during the declaration process, and the support of a tax law professional can make a difference.

How to Prevent Risks in Practice?

Here are some recommendations we regularly give to our clients regarding the declaration of capital gains:

Always check if the amount of the deduction applied to IR has been correctly "neutralized" for the calculation of social contributions.
Control the data automatically reported by the IFU (Unique Tax Form) provided by your financial institution, particularly boxes 3VG, 3VH, 3SG, etc.
In case of doubt, have your declaration validated by a professional (accountant or corporate legal advisor).

Anticipating these questions before the transfer, as part of a wealth or tax audit, remains a good practice to avoid unpleasant surprises during the control phase.

Conclusion: Caution but No Panic

The ruling from the CAA of Versailles in May 2025 offers a nuanced and reassuring reading of the principle of increase for deliberate breach. It refuses to sanction declarative errors when they do not stem from an intention to commit fraud.

However, these situations can lead to heavy reassessments, hence the need for rigorous support, especially for leaders considering a fundraising, a partial or total exit, or a business transfer.

PRAX Avocats supports start-ups and business leaders in securing the legal and tax aspects of their strategic operations, from fundraising to the transfer of securities. For tailored advice suited to your situation,

👉 Contact the firm.